2019 (7) TMI 1575 - HC - Income Tax

MAT computation u/s 115JB - provision for unidentified Motor Third Party Claim - whether is an ascertained liability and should be deducted while computing the book profit under Section 115JB - whether the aforesaid provision made for the liability which has not been crystallized and such provision is neither backed by Insurance Regulatory Development Authority (IRDA) nor by any accounting standards? - HELD THAT - Issue covered by the decision of this Court in Commissioner of Income Tax, Kolkata-II, Kolkata vs. National Insurance Co. Ltd. 2014 (9) TMI 1211 - CALCUTTA HIGH COURT in favour of the assessee. Liabilities Incurred But not Reported (IBNR) - Whether an ascertained liability and should be deducted while computing the book profit u/s 115JB - HELD THAT - department has accepted the claim of the assessee on the aforesaid issue in assessment years 2000-2001 to 2004- 2005 and 2006-2007 2016 (8) TMI 326 - ITAT KOLKATA and it could not show exceptional reason for departure of their stand in the present assessment year.

Summary

Issues:
1. Whether provision for unidentified Motor Third Party Claim is an ascertained liability deductible under Section 115JB of the Income Tax Act, 1961?
2. Whether provision for "Liabilities Incurred But not Reported" (IBNR) is a deductible ascertained liability under Section 115JB of the Income Tax Act, 1961?

Issue 1:
The first issue revolves around the deduction of a provision for unidentified Motor Third Party Claim as an ascertained liability under Section 115JB of the Income Tax Act, 1961. The revenue challenged the deletion of an addition of a substantial amount by the Income Tax Appellate Tribunal. The court referred to a previous decision in favor of the assessee in a similar case, establishing the provision as an ascertained liability. The court found no merit in the revenue's appeal, ultimately dismissing it.

Issue 2:
The second issue pertains to the deduction of a provision for "Liabilities Incurred But not Reported" (IBNR) as an ascertained liability under Section 115JB of the Income Tax Act, 1961. The department had previously accepted the assessee's claim on this issue in multiple assessment years, failing to provide a valid reason for changing their stance in the current assessment year. The court, considering the department's inconsistency and lack of exceptional reasons, dismissed the appeal and the stay application, as the provision was deemed deductible under Section 115JB.

In summary, the High Court of Calcutta, in a judgment related to an appeal under Section 260A of the Income Tax Act, 1961, addressed two key issues concerning the deduction of provisions for liabilities. The court upheld the provisions as ascertained liabilities, citing precedents and the department's inconsistent stance in previous assessment years. Consequently, the court dismissed the revenue's appeal, emphasizing the provisions' deductibility under Section 115JB of the Income Tax Act, 1961.